Is Peer to Peer, (P2P), lending a bit of a risk?


Is Peer to Peer, (P2P), lending a bit of a risk?

One of our partners was approached via LinkedIn to introduce clients to iban online, (http://ibanonline.com), a new entrant to the peer to peer investment/lending market. The elephant in the room with all peer to peer lenders is that they are not included in the Bank of England safeguards for banks or the Financial Services Compensation Scheme, (FSCS).  In the event of a business failure, you will be an unsecured creditor, with little chance of your money back, like everyone else.

Like its competitors, iban online have included in their business offering a guarantee fund to top-up investors whose loans have been defaulted, but unlike the competitors, they do not have a long trading history to refer sceptical parties to.

So, should you take a loan from them or make an investment in them?

Borrowing from them is hardly a risk to you - you would have their money and your repayments are their risk. If the rate is good and you needed the loan, then why not?

Lending is a different matter; for this to work for you, you not only need to get a return, you also need to get your original investment back. As a new company, you do not have much to go on and the website does not explain who the initial backers are. Older competitors like Zopa and RateSetter needed significant external funding to get established and now have a track record of meeting their bills as they fall due.

Going further than that, the cynic in me would suggest that as they have not provided the information on their website required by the UK Business Names legislation, perhaps they are under-prepared. Looking on Companies House finds one new company registered on the 20th July 2016 called IBAN ONLINE LTD, registration number 10288739 with two directors and the correspondence address of Iban Online, 95 Arcadian Gardens, Wood Green, London N22 5AG. Checking the Whois details, (website registration details), for the website is unhelpful as the registrant is anonymised and based in Spain.

Digging further through the Companies House filings, gives the limited company subscriber details, with the CEO from Spain, one from Wells, one from the Dominican Republic and a final member also from Spain. 100 ordinary shares have been issued with a value of £1, so in the event of a winding up, there is little to be recovered by an unsecured creditor. Looking at records held by Companies House is not an infallible guide to the health or otherwise of a company, as the details are usually out of date, but in the absence of anything else to go on, it is much better than nothing.

Looking at Zopa Limited’s statutory accounts for the year to 31st December 2015, gives net assets of £13,597,122, allowing perhaps a little more faith in the ability for you to recover your loan money at the end of your investment commitment.

All of the peer to peer investment companies now seem to offer “guarantees”, but as they are not externally insured, you are relying on the strength of the company offering the guarantee. As my granny used to say, “Fine words butter no parsnips”; the prettiest website in the world and the best copy will not make up for a lack of financial substance.

As a general rule, regulated IFAs like ourselves would not recommend peer to per lending as an investment, notwithstanding the higher returns than the banks, as there is no FSCS guarantee. Peer to peer lending may have a place in your portfolio, but that will be for you to judge, based on the knowledge that any guarantee is only as good as the person giving it.

As with any investment, regulated or otherwise, only risk, (or invest), what you are willing to lose.

If you would like to know more about how we can help you plan and realise your financial goals, then contact us at info@martin-redmanpartners.co.uk or call us on 01223 792 196.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.